Thursday, January 05, 2017

Of Energy, and Economics, and Ecology...

Alberta has been, for several decades now, a carbon-based economy. [Actually I would argue that the global economy is pretty much carbon based, but for some of us the base is much more obvious.] The extraction and sale of oil and natural gas has been a major, if not the main, driver of economic activity in the province for my whole lifetime.

Which has meant for some very heady years. There have bee times when money was coming in so quickly governments appeared incapable of managing it well. And then the price of oil would crash and the provincial economy sputtered. Soaring heights to deep crash has been the rule, despite the fact that for the last 30+ years there has been an ongoing discussion about the need to diversify the economy, to get off the oil royalty roller-coaster, to provide a bit more stability to provincial economics and finances. (Though to be honest it always appears to me that the diversification discussion only happens in earnest during the crash when money to support new initiatives is tight and then the price of oil swings back up and people are too busy to do anything but surf the wave.)

And then there is the ecological issue. Carbon-based climate change can be a touchy subject in a carbon-based economy -- especially when said economy is struggling. Anything that seems to place obstacles in the way of such a major piston in the economic engine is portrayed as dangerous, reckless, unfeeling... And yet in a social climate where there is more and ore pressure to address climate change the image of Alberta has not always been positive -- like when the area around the Athabasca Oilsands projects (think Fort McMurray) was compared to Mordor. The more people in Alberta politics and in the oil industry (not all but some) insisted that things had to keep happening "the way they always have" the harder it was for Alberta politicians and business leaders to sell new pipelines to get our key commodity to market (which was self-defeating in the end). Even with ten years of a very oil-friendly Prime Minister in office major pipeline projects were stalled.

18 months ago we had an election. And for the first time in over 40 years elected a new governing party. This happened to be in the midst of one of the biggest slumps in the oilfield in recent decades. The new government has not automatically been doing business as usual (which means they are blamed for the ongoing struggle of the economy although I firmly believe the Alberta economy would be in much the same shape no matter which party was in government, possibly worse if a strongly fiscal party was in power and slashing spending). One of the things they have done was bring in a Carbon Tax (the official term is levy but let us call a spade a spade), which took effect as we took one calendar off the wall and put the new one up for 2017. It is a two step process, this year Carbon emissions are tagged at $20/tonne and effective January 1, 2018 the price will increase to $30/tonne. It is also worth noting that if the province did not do this a carbon price would come into effect next year anyway under the Federal government plan.

The basic premise of carbon pricing is that if we make emitting carbon more expensive then people will emit less. Which is actually very sound in theory (and has been shown to make a difference in British Colombia which has had a carbon price for years and in Newfoundland where they raise the gas tax substantially last year). I am just not sure that we have found the price point which spurs that change. I remember a discussion 10 years ago (or longer) when a group from the congregation watched An Inconvenient Truth followed by some debriefing. At that time gasoline was climbing above $1/liter, which was seen as a sort of bellwether event. People were commenting on how much more expensive travelling was going to be but when asked if that meant they would travel less the answer was no... The Alberta Carbon Tax/Levy raises the price of gasoline by $0.049/L and diesel by $0.0535/L Will that make people change driving habits in what is, to be honest, a very car-centered culture? Time will well.

As one could have predicted, the new tax/levy is less than popular. (Seriously, when has a new or increased tax been warmly welcomed, even if people agree it is needed?) It does have the potential to raise the cost of living, in a time when large numbers of people are unemployed and struggling to make ends meet. But I don't believe it to be the harbinger of doom that the more conservative voices in the province insist it is.

To begin with, low an middle-income Albertans will automatically (assuming they filed their income tax last year) qualify for a rebate that the province estimates will cover the added costs for gasoline and natural gas. True, tying it to income tax returns means that there may be a year lag for some whose income changed drastically over this last year (same thing happened years ago when Alberta has a health care premium and the subsidy was also tied to income tax returns) but at the same time this lag may mean that people will get a payment a year later than when their income falls within the guidelines. And the rebate is just issued, it is not tied to what you actually spend so if you ARE able to cut down on your emissions (and admittedly some/many people will not be able [or will choose not] to do so) you could conceivably make money on the deal. The next step is to provide some money to assist/incentivize folks to install higher efficiency lighting or furnaces and so on to help cut down emissions.

The uncertain part of the cost equation are the indirect costs. The rebate is aimed to cover the direct costs associated with the tax/levy (and some will debate if that does so effectively or if the income cut off is in the right spot). But there will be costs to businesses that will almost inevitably be passed on to the consumer. Calculating those is apparently a real wide field. I have seen numbers that differ by a factor of 3. But in the end I am leaning towards the lower numbers. As one person pointed out is a FB post that was widely shared:Assume a fully loaded semi uses 1 liter of fuel per kilometer (because this makes the math really easy). That increases the cost to ship that load by $0.0535 per kilometer, or $5.35 per 100 kilometers. Now a fully loaded semi will have cargo worth several thousand dollars. Dividing the extra cost amongst the value of the load means that the per unit cost is pretty darn low.

Then you add in the fact that the federal government made it clear that the presence of a climate plan in Alberta was a part of what led them to approve two pipeline projects last month and it is really hard to sell the tax/levy as the economy killer some claim it is (want it to be so they can be right?).

But there is a bigger picture question to me.

How do we determine what the "fair/right/proper" price for energy is?

Is it simply the cost of production and distribution (plus a bit of profit)?
OR do you factor in a price for ecological issues? Because there is no sch thing as totally clean energy. In the long run I lean to the latter, though that is a hard thing to calculate. A price on carbon is one way to do that (though there is still the need to figure out a price associated with the changing of a waterway [hydro] or a nuclear plant or the land use of a wind farm or solar array [to be honest a solar array can be piggy backed on many other land uses].

I am not convinced that a price on carbon is the best or only way to address climate change. I am convinced it is a good one. I am not convinced it will do irreparable damage to the economy. I do know that for a variety of reasons (both political and ecological) we can not continue to do things the way we always have (and I am equally convinced that the Official Opposition in this province wants to do exactly that.

So in the end I support the Carbon Tax/Levy. As a start to how we change the world. But there are miles to go before we sleep...